We recently compiled a list of the 11 Best American Defense Stocks to Buy Now. In this article, we are going to take a look at where TransDigm Group Incorporated (NYSE:TDG) stands against other best American defense stocks.
America’s defense sector has struggled under Trump’s second term as president, amid mixed views on military expenditure in the early days of his second stint. Shares were volatile last month following his statement to cut defense spending in the future, and later in response to a contentious spat with visiting Ukrainian leader, Volodymyr Zelensky, at the Oval Office.
The creation of DOGE is also reshaping investors’ views of the industry. Byron Callan, managing partner at Capital Alpha Partners, believes there is a high level of uncertainty in the US defense sector related to current and future programs and the likelihood of severe cuts to government workforces.
READ ALSO: 13 Best Defense Stocks to Buy According to Billionaires and 10 Best Large Cap Defense Stocks to Buy Now.
On the other hand, Trump’s pivot on Ukraine has fueled robust gains in defense stocks elsewhere, especially in Europe, where several armament manufacturers have seen double-digit growth this year, with some even reaching record highs, as governments faced pressures to increase military expenditure.
Washington has repeatedly called for Europe to spend more on defense, while stressing that the US could no longer foot the bill. EU leaders met in Brussels last week to discuss the ‘ReArm Europe Plan’, which will allow the bloc to mobilize funds up to $860 million through bonds and relaxed rules on borrowing and spending.
According to a report in Reuters, asset managers across Europe are planning to increase exposure to defense stocks, under pressure from investors and politicians to loosen restrictions. Funds that have been badged as ‘sustainable’ under the EU’s rules are required to ensure their investments do no significant harm, because of which they tend to avoid the sector completely.
Several Korean companies have also benefited from Europe’s defense splurge. While the performance of the US defense sector was lagging behind Europe and Asia well before the presidential elections, the gap has widened after Trump’s victory.
Despite a grim outlook, Citi analyst, Jason Gursky, is urging investors that this is the right time to buy American defense stocks. Here is what he wrote in a note to clients last week:
“We recognize the world order is evolving under the current President, perhaps to a multi-polar one in which three countries control spheres of influence over the Americas, Europe and Asia. However, we don’t view that world to be any less dangerous or one that decreases the need to acquire the tools of deterrence.”
Trump’s recent statement on resurrecting American military and commercial shipbuilding has also been well-received. Shares of a major naval defense contractor have surged over the past week, following the announcement. The US president has vowed to fix the industry, which he sees as vital to national security, given the strategic competition with China.
An aerial view of an aircraft factory, showing a flurry of activity on the factory floor.
Our Methodology
For this article, we sifted through screeners to identify American stocks in the aerospace and defense industry. From there, we selected the 11 stocks with the highest number of hedge fund investors, based on Insider Monkey’s database of over 1,000 prominent hedge funds as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
TransDigm Group Incorporated (NYSE:TDG)
Number of Hedge Fund Holders: 69
TransDigm Group Incorporated (NYSE:TDG) manufactures engineered aircraft components for commercial and military aircraft. Recent strategic acquisitions over the past year are shaping the company well for significant increases in future revenue and to further solidify its position in the industry.
On July 31, 2024, it completed the acquisition of Raptor Scientific, a leading provider of complex text and manufacturing solutions for the aerospace and defense markets, for $655 million. Nearly all of its revenue comes from proprietary products.
Earlier in June, TransDigm Group Incorporated (NYSE:TDG) acquired Communications & Power Industries’ Electron Device business for $1.385 billion in cash. It is a leading manufacturer and supplier of electronic components and subsystems for the aerospace and defense industry, with about 70% of its revenue generated from the aftermarket.
TransDigm Group Incorporated (NYSE:TDG)’s financial performance remains strong. On February 4, the company reported results for the first quarter of fiscal 2025. It generated a net income of $493 million, up 29% from last year, driven by a 12% year-over-year surge in net sales. Adjusted EPS stood at $7.83, growing 9% from the prior year’s quarter.
Wall Street analysts are bullish on TransDigm Group Incorporated (NYSE:TDG) with a consensus Buy rating and an average share price upside potential of 9.81%. According to Insider Monkey’s database for Q4 2024, 69 hedge funds held a stake in the company, making it one of the best defense stocks to buy. AltaRock Partners was the largest investor in TDG, with holdings of nearly $1.27 billion, as of December 31, 2024.
Overall, TDG ranks 4th among the 11 Best American Defense Stocks to Buy Now. While we acknowledge the potential of defense companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TDG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires
Disclosure: None. This article is originally published at Insider Monkey.
